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Big CAW cuts certain, but no deal yet

Negotiators for Chrysler and its union are still working on a deal for concessions today that could help keep the company alive and protect workers' pensions and retiree health benefits if it slips into bankruptcy court protection in Canada.

By Tony Van AlphenBusiness Reporter

Fri., April 24, 2009

Negotiators for Chrysler and its union are still working on a deal for concessions today that could help keep the company alive and protect workers' pensions and retiree health benefits if it slips into bankruptcy court protection in Canada.

Sources confirmed last night that the Canadian Auto Workers and Chrysler had cut labour costs significantly, so the company can compete with Honda and Toyota in Canada and qualify for about $2.9 billion in government loans.

Furthermore, the sources noted the union had received assurances that workers' pensions and retiree health-care benefits would be saved if the company gains protection from creditors under the federal Companies' Creditors Arrangement Act.

"But we're hoping that's not the case," CAW president Ken Lewenza said about a possible CCAA filing.

The assurances came as the U.S. Treasury Department prepared a Chapter 11 bankruptcy filing for Chrysler LLC that could come as early as next week.

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The New York Times reported yesterday that the Treasury Department has an agreement in principle with the United Auto Workers union, whose members' pensions and retiree health-care benefits would be protected as a condition of the bankruptcy filing.

Moreover, Fiat SpA would complete its merger with Chrysler while the company is under bankruptcy protection in both countries, according to the newspaper. A merger is a condition for government aid in either country.

The federal and Ontario governments had set a "deadline" for reaching a tentative deal on concessions at midnight on Wednesday but talks dragged on into yesterday.

Lewenza told reporters the union is working diligently to meet the "requirements" of Fiat so a merger can proceed.

Workers still need to ratify any deal for concessions by April 30, which is another deadline set by the U.S. and Canadian governments for submitting new restructuring plans. Chrysler also needs concessions from other stakeholders.

Lewenza signalled earlier this week that the union would accept more concessions at Chrysler and break a "pattern deal" for cuts identical to those General Motors workers ratified last month.

Chrysler, which urged the union to scrap the GM pattern deal, had insisted it needed concessions totalling about $19 an hour to compete with Toyota and Honda.

Chrysler had sought cuts in health-care benefits, shift premiums, life insurance and child care that would trim labour costs by more than $8 an hour. In earlier negotiations, the union has rejected most of those proposals.

Among other things, sources said the union has agreed on a decrease in relief time for workers in Chrysler's plants and a reduction in job classifications.

The moves would cut costs and give the company more flexibility in human resources but it is unclear by how much.

Regarding a possible bankruptcy filing in the U.S. and Canada, the only major question that remains unresolved is what happens to Chrysler's lenders, who hold $6.9 billion (U.S.) in company debt.

A bankruptcy filing by Chrysler would be the first among Detroit's struggling automakers, who are fighting for survival because of the crash in North American auto sales since last fall.

The U.S. Treasury is also working with GM to prepare a possible bankruptcy case. Some industry watchers questioned whether the Treasury's actions to prepare a bankruptcy case were an effort to put more pressure on lenders.

While Chrysler faces an April 30 deadline from the U.S. and Canadian governments, GM doesn't need to submit a plan until June 1.

Under the most probable scenario, the U.S. Treasury will provide the financing Chrysler needs to operate while under bankruptcy protection.

Ottawa will also likely provide aid if the company operates under court protection here.

Last month, the White House told Chrysler it would provide up to $6 billion in financing if Chrysler and Fiat could complete a deal by the end of this month.

In Canada, the governments have already provided Chrysler with $750 million (Canadian).

Although the two companies have been holding merger talks, the Times said a bankruptcy case would allow Fiat to more easily select the assets of Chrysler that it wants to keep such as dealerships, factories and the company's product development operations.

Meanwhile, GM announced it will idle nine assembly plants in the second and third quarters for as long as nine weeks in some locations because of continuing slow sales and heavy inventories.

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